Exchange traded fund providers have worked to bring efficient investment tools and strategies to the average retail investor. In recognition of their deeds, Morningstar announced its inaugural awards for best U.S. ETFs and ETF providers at its annual ETF Invest Conference.
According to a press release, five providers were dubbed the 2012 Morningstar Best ETF Providers in five U.S. broad asset categories.
- iPath exchange traded notes for commodities
- iShares for international stocks
- Vanguard for sector stocks
- iShares for taxable bonds
- Vanguard for U.S. stocks
“We’re introducing ETF awards to help individual investors, advisors, and institutional investors identify ETFs with strong one- and three-year performance track records and reasonable costs,” Paul Justice, Morningstar’s director of research for passive funds, said in the press release.
For instance, Vanguard has some of the cheapest expense ratios on the ETF market, coming in at 0.17%, compared to the industry average of about 0.55%.
Criteria considerations for the awards included retail and institutional investing objectives based on performance and cost. Additionally, estimated holding costs, tracking volatility and market impact costs, the ability of the ETF to track its index and risk-adjusted returns were also factored into the decision.
“While the awards take into account past results, performance is only part of the story. Costs are important to ETF investors, and the total cost of holding an ETF goes beyond simple expense ratios, which is why the awards also consider estimated holding costs and liquidity costs. Because performance can be fleeting, we emphasize cost analysis because fees have less variance year to year,” Justice added.
Expense ratios provide a definitive explicit cost, but ETF investors may notice implicit costs, as well. For example, investors may suffer an indirect loss if the ETF’s performance starts deviating away from its underlying holdings.
For more more information on past conferences, visit our ETF conferences category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.